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The federal watchdog that keeps an eye on natural resources projects to prevent environmental damage says it could soon be understaffed and overworked, limiting its ability to do its job.

The president of the Canadian Environmental Assessment Agency told members of a parliamentary committee Thursday the agency could lose 43 per cent of its annual budget at the end of the year, dropping to $17.1 million in 2012-13 from $30 million in 2011-12.

Elaine Feldman told MPs the agency may have to lay off one-third of its staff, 80 people out of 242, at a time when the country is facing a huge surge in major projects in mining, oil and gas and forestry.

"What I'm told is there is up to $500 billion of potential new investments in Canadian natural resource projects in the coming years, and if that is the right figure the agency is going to be very busy," said Feldman.

The Canadian Environmental Assessment Agency reviews a wide range of projects that fall under federal jurisdiction, use federal money or take place on federal land.

The projects include everything from small endeavours such as maple syrup farms to big ones like oil and gas projects. The bulk of its clients are mines, including the massive oilsands projects in Alberta. The agency's mandate is to make sure that projects don't harm the environment.

The federal government increased the agency's budget in 2007 and again in 2010 to help keep up with the surge in new applications for resource projects. But Feldman told the committee the money runs out at the end of this fiscal year.

"That will be a decision that will be part of budget 2012," Feldman said. "We don't know if the sun-setting funds will be renewed ... we will just have to wait and see."

Some MPs expressed concerned that a drop in the agency's budget could hamper it from doing its job of protecting the environment.

Conservative MP Stephen Woodworth suggested that part of the answer could be reducing the long list of small projects the agency has to assess and let it devote its resources to looking at the major ones.

Feldman agreed that is an option for the future. But for now her agency just has to wait and see.

"We simply don't know what is going to happen."

The CEAA was before the Commons environment committee as part of its seven-year review.